Strategy & Organization, Design & Technology January 24, 2018
The Digital Trends that every Finance Institution has to pay attention to
The financial world is going through a great digital acceleration period. From corporate startups to revolutionary user experiences: everything is moving. These are the three most important digital trends in finance.
1. Experience first: the interface wins
As of 1 January 2018, each bank is required by the PSD2 regulations to allow customers to separate their account data from the interface. This means that you will be able to load your bank account in a different interface than that of the bank where you are a customer. Compare it to the use of an external mail client for managing Gmail. This will create more competition on that interface. Traditionally, you see that people do not move quickly from bank, that is too much hassle. But they will switch to another interface much more easily if it offers a better experience. At some point, payment will also be made. So you will see many apps that offer fantastic interfaces for banking. Banks invest a lot in their own interfaces because that is often the only touchpoint they still have with their customers. If there is a lot of competition in that area, banks will fear that they lose that essential point of contact. You can see that banks are already anticipating this by adding all kinds of products to their apps, such as insurance, mortgages, loans, and shares. At ING, for example, you can now also add your Bunq account.
Bunq is a good example of a winning interface. Whether it is about opening an account or applying for a bank card: it all works great. Bunq is not actually a bank, but a technology company in finance. They are very small compared to the big banks, but in our opinion, they outclass all major banks in the field of customer journey. They think about it. You can create different pots of money at Bunq and link your debit card. From the customer, community came the remark that it is too much work to switch accounts when you are at the checkout and thus improved Bunq the interface by linking several PINs to those pots of money. Bunq thinks very service-minded from the interface and will win in that area. It will not be long before Bunq also applies her model to taking out insurance. The interface is, therefore, becoming increasingly important because financial products are somewhat commoditized. The content does not differ much among suppliers. It is, therefore, more about tailor-made services. People are now often insured per package but do not know what is sitting in that package. We go from packages to modules. That also makes people more aware of the value of what they insure.
Through the disconnection of account and interface, people will make many more UX-driven choices. In the past, you looked at the terms and conditions of the bank, later on, you will choose from ease. You choose the best experience. That is the area where financial institutions can still distinguish themselves in the future.
2. The bank as a launch platform for startups
Almost every major bank / financial institution is experimenting to design new products and services putting the experience first, of which we increasingly see doing really well, such as Tikkie and New10, both initiatives of ABN AMRO. Rabobank recently launched Peaks (investing with your change) and Tellow (administrative application for self-employed people). In the field of insurance, there is POT from Reaal (insuring freelancers), and internationally, for example, we see the English Revolut and the Polish N26, a kind of Bunq but bigger. Banks and insurance companies are en masse in fintechs because they see the PSD2 regulations coming up and know that they will otherwise be overtaken left and right. It is another way to add value to the services they provide.
In the US you now have Lemonade, an insurance company that works on the basis of the idea that you only pay for what you need, not for a whole package. They are active in four states and are gradually expanding. They do not come from the finance sector but have developed a product from the interface (again that interface). Large banks are struggling to do that via existing interfaces. This also applies to insurers. Lemonade, Trov, and Bunq are designed based on user experience. Lemonade currently only does home insurance for tenants. They focus on urban dwellers. They look at what is happening in the world and see that people are often only present for a short time and offer ultra-short insurances that you can close in 90 seconds. They reason entirely from the experience.
Not all new players in the market become profitable conglomerates, but they help large financial institutions to think differently about their own organization. Innovation does not necessarily start at 0, but builds on existing elements. The ABN AMRO has added ‘Grip’, a startup from Scandinavia. The problem with startups is that they have to win every user, big companies already have those customers. It was thought that Bunq would be bigger than the existing big banks, but that did not happen because banks like ING and ABN AMRO anticipated in time setting up start-ups outside the organization, using the know-how and strength of the parent company.
3. MORE CONFIDENCE BY BLOCKCHAIN
The core of blockchain technology is building trust in a decentralized manner, without needing a central institution such as a central bank. This has a major influence on the role of banks but goes further than that. It affects how we will arrange, invest, and book our insurance.
The most visible form of blockchain technology is cryptocurrencies, such as Bitcoin and Ethereum. And everyone who has seen the news in recent weeks knows that these currencies have increased in value in an unrealistic way. It is primarily a symptom of a technology that is still in its infancy. Bitcoin is a concept that is understandable to people. It is a coin with a value that rises or falls. But that currency may just have disappeared in a few years. The real value is not in that currency, but in the blockchain technology behind it. This technology does not only have worth for the banks but also outside of the need for a decentralized monetary system.
TUI, the largest travel organization in the world, has sold its booking system and invested that money in a new component that will take care of travel bookings based on blockchain technology. Normally TUI goes with the money and the data of its customers to an airline, hotel and car rental company. That data is returned to the customer via TUI, but that is a very cumbersome process in which everything goes wrong. They recognize that TUI will become more of a facilitator in the future, with the customer making direct bookings via blockchain technology.
You also see that in the banking world. If someone now makes a payment from Rabobank to someone at ABN AMRO, Rabo transfers to ABN AMRO via the interbank system. That costs a day. In the future, it will be the case that consumers arrange the payment directly, without the intervention of a bank. The role of banks in a blockchain ecosystem is, therefore, going to change enormously. The question is how they earn their money. Banks know that they have to do something with this, but they do not know exactly yet. You can already see carefully big banks like the Swiss UBS and the three largest banks in Japan that are experimenting with blockchain.
The expectation is that in the coming years there will be a kind of shake-out in the cryptocurrencies, in which the technology will become more mainstream. As soon as people start to use it more and it becomes available as software, we will see a lot of applications. In the Netherlands, you can think of the passing of certificates, such as taking out a mortgage. All kinds of instant financial services will arise that make a notary or accountant unnecessary. You click your house online at Funda and arrange your mortgage à la Ideal. That seems unimaginable now, but in five to seven years this will be considered safer than through the bank. The same applies to IDIN, the system used by banks to identify each other’s customers. Banks have set up this themselves on the basis of account numbers, but that will no longer be necessary with blockchain. That also applies to DigiD. With one blockchain ID, you will be able to identify yourself about all those systems later on.
Whether it concerns the interface, (corporate) fintechs or blockchain: the finance world is in full swing, and standing still is not an option.